In the case, the Supreme Court has ruled that employees who only work for part of the year (e.g. term-time workers) are entitled to 5.6 weeks of holiday pay like employees that work all year round.
This will impact all employer with term time employees, zero hours employees or other working arrangements which involve employees being employed for a full year but working only for part of that year.
Glen considers that there is a holiday pay liability for many of our employees as a result of this case, which is a legislative change , and are in the process of developing a plan to mitigate historic risk and change arrangements to ensure future compliance.
The case involved a music teacher that only worked during school terms and had a zero hours contract. The employee was deemed to take annual leave during the school holidays and from 2011 onwards, in line with ACAS guidance at that time, the employer would calculate her earnings at the end of each term, take 12.07% of that figure and pay the applicable hourly rate for that number of hours as holiday pay. The employee argued that she should instead have had her holiday pay calculated by taking an average of her earnings over the previous 12 weeks (from 6 April 2020 this reference period was increased to 52 weeks), which would have resulted in a higher amount of holiday pay.
The Supreme Court agreed with the Court of Appeal and the Employment Appeal Tribunal that the employee was correct. It held that the amount of leave the employee was entitled to did not need to be pro-rated so that it was proportional to that of a full-time employee. The court acknowledged that this may create odd results, where a part-year employee's holiday pay represents a higher proportion of their annual pay than that of a full-time employee. However, the court found that whilst those with an atypical working pattern may benefit from this approach, it was not so absurd as to justify the wholesale revision of the holiday pay calculation set out in the legislation.
The impact of this case is that employers should not be (and should not have been) using the 12.07% holiday pay calculation for employees, which has been common practice for those on zero-hours contracts.
In addition, it means that the holiday pay for employees that work for only part of the year will be proportionally higher than that of an employee that works full time. As an example, if an employee without fixed hours is employed for a whole year but only works for 20 weeks in that year and is paid £100 for each week they work, they will accrue the full 5.6 weeks of holiday entitlement and be entitled to £560 as holiday pay (the equivalent of 28% of annual pay). Whereas an employee that works all year round would work for 46.4 weeks a year and take the remaining 5.6 weeks as holiday. If they were also entitled to £100 per week, their holiday pay would also be £560, but this would be the equivalent of 12.07% of annual pay.
In our experience, we and many in our industry, pro-rate the holiday entitlement for employees that only work for part of the year so that their holiday entitlement reflects how much work they have performed. The Supreme Court has now found that this is the wrong approach and employees’ holiday pay entitlement is based on how long an employee is employed for, rather than how much work they perform in that time.
Our intention is to take steps to change holiday pay practices. Our Regional Managers Andy Burge, Phil Howells and Paul Fowler, will discuss any financial implications this may have.